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FDI IN MULTI BRAND RETAIL:MYTHS AND REALITY

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FDI IN MULTI BRAND RETAIL:MYTHS AND REALITY
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    FDI IN MULTI- BRAND RETAIL: MYTH S AND REALITIES 1.Arvind W. Ubale. Asst. Professor and Research Scholar. A.Vartak College, Vasai- Road, Dist- Thane. 2. Dr. P.Y. Harkal, Associate Professor, Member of BOS and Research Guide(S.R.T.M.U,Nanded) D.S.M. College, Parbhani.  ABSTRACT Indian retail industry is one of the sunrise sectors with huge growth potential. According to the Investment Commission of India, the retail sector is expected to grow almost three times its current levels to $660 billion by 2015. However, in spite of the recent developments in retailing and its immense contribution to the economy, retailing continues to  be the least evolved industries and the growth of organized retailing in India has been much slower as compared to rest of the world. Undoubtedly, this dismal situation of the retail sector, despite the on-going wave of incessant liberalization and globalization stems from the absence of an FDI encouraging policy in the Indian retail sector. In this context, the present paper attempts to analyze the strategic issues concerning the influx of foreign direct investment in the Indian retail industry. Moreover, with the latest move of the government to allow FDI in the multiband retailing sector, the  paper analyses the effects of these changes on organized and unorganized retail Indian economy. The findings of the study point out that FDI in retail would undoubtedly enable India Inc. to integrate its economy with that of the global economy. Thus, as a matter of fact FDI in the  buzzing Indian retail sector should not just be freely allowed but should be significantly encouraged. The paper ends with a review of policy options that can be adopted by Indian government. Keywords:  Organized retail, sunrise sector, globalization, foreign direct investment, Strategic issues and prospects, government policies.  Introduction: India being a signatory to World Trade Organisation‟s General Agreement on Trade in Services, which include wholesale and retailing services, had to open up the retail trade sector to foreign investment. There were initial reservations towards opening up of retail sector arising from fear of job losses, procurement from international market, competition and loss of entrepreneurial opportunities. However, the government in a series of moves has opened up the retail sector slowly to Foreign Direct Investment (“FDI”). In 1997, FDI in cash and carry (wholesale) with 100 percent ownership was allowed under the Government approval route. It was brought under the automatic route in 2006. 51 percent investment in a single  brand retail outlet was also permitted in 2006. FDI in Multi-Brand retailing is prohibited in India. The Government approved sweeping reforms in FDI with a first step towards partially opening retail market to foreign investor. It will now allow 51per cent in multi brand product in the retail sector. But the trade in India is fragmented, unorganized , UN networked, and individually ssmall. The 12.17 million kirans shops are mostly family o r “ma -  pa” owned with little capital for expansion or credit to receive or to extent to consumer About 96 per cent of these shops have 500 sq. or less of space with limited stock or choice to offer. During all these years, instead of shedding tears for indigenous trade and resisting FDI , had the government declared it an industry, We need a rational approach towards FDI in Indian retail trade: in particular, how after it permitted free access, it is subject to regulatory supervision. Objective of Paper: It is very important to see FDI in Multi- Brand in Retail in this research paper an attempt has been made to develop on insight as to what are the trends in Indian Retail Market and Government policies on the FDI in retail industry and its need for the Indian economy. The to present opportunities and challenges of FDI in multi-brand retail sector and to examine the impact of multi-brand FDI on Indian economy.  In this paper, we discuss the policy developments for FDI in these two retail categories, with a focus on the details of the multi-brand retail FDI discussion paper and related policy developments.  Research Methodology: FDI in multi-brand is announced by the central government and action and reaction have  been emerging from various sector of the Indian society therefore for the said paper secondary sources have been used. The researcher has adopted analytical, descriptive and comparative methodology for this paper; reliance has been placed on books, journals, newspapers and online databases and on the views of writers in the discipline of Competition law and Government documents and articles from leading news papers and magazines,  proceeding of parliaments on this issue. FDI in Multi-Brand Retail:  Foreign Direct Investment (FDI) in the retail sector has always been a contentious issue per se, courtesy the well documented proclivity of our policy makers to dither and delay decision making on key aspects stemming from political risks at large. Presently, India allows 51% FDI in single-brand retail and 100% for cash-and-carry outlets that are permitted to sell only to other retailers and businesses. This has seen global giants such as Walmart and Carrefour enter the Indian market. Walmart currently operates five cash-and-carry outlets in partnership with the Bharti Group while Carrefour set shop with its first cash-and-carry store last December. FDI in multi-brand retail however, has always been a hot potato of sorts. With global retailers clamoring at our doors, a burgeoning market ripe for organized development and an increasingly discerning and aware end-product consumer; policy makers have been unwilling to throw caution to the wind and go the whole hog by allowing any sort of FDI intervention with regards to multi-brand retail in the country. The authorities have made the right noises from time to time, germane to the matter at hand, but have been reluctant to “open the floodgates” as far as FDI in multi -brand retailing is concerned. However, in the face of rising inflation, need for proactive economic and strategic reforms and employment generation opportunities; the Government has off late, softened its stance…partially shedding its garb of recalcitrance and embracing the next phase of economic liberalization.. The Indian retail sector is presently hounded by a flawed and floundering supply chain that has caused humungous monetary losses to all domestic players in the business, both big and small. Coupled with gross mismanagement and an inherent inability to address these deficiencies, the supply chain rema ins the retail sector‟s weakest link. Bereft of a sound supply chain system, dogged by managerial and logistical impediments and the absence of   proper cold storage facilities and warehouses; the sector incurs losses to the tune of over US$ 1 trillion annually. Hence, the need to allow FDI in multi-brand retail assumes even greater significance. These global retailers are expected to bring with them a wealth of experience, streamline supply chain operations, eliminate the predatory middlemen and infuse a greater degree of strategic technical expertise that will only benefit the sector as a whole. The domestic players will face stiff competition and many of them may look to enter into strategic alliances with these global giants in order to safeguard and further their interests and protect their margins, but are likely to take a leaf out of their books and implement proactive strategies to establish stronger and more robust supply chains. At the end of the day, it is about delivering value to the consumer and ensuring a veritable level of customer satisfaction. An efficient supply chain, seamlessly integrated into a holistic retail business mainframe, goes a long way in doing just that. Although the discussion paper lacked clarity on various aspects, it is still regarded as a positive step in the larger scheme of things As India has liberalized its single brand retail industry to permit 100 percent foreign investment, we take a look at the regulatory issues and legal structures pertinent to establishing operations in this new dynamic market. That India should be well on the radar for foreign retailers was recently supported by A.T. Kearney, who‟s 2011 Global Retail Development Index ranks the nation as fourth globally. India‟s retail industry is estimated to  be worth approximately US$411.28 billion and is still growing, expected to reach US$804.06  billion in 2015. As part of the economic liberalization process set in place by the Industrial Policy of 1991, the Indian government has opened the retail sector to FDI slowly through a series of steps:   The Indian government removed the 51 percent cap on FDI into single-brand retail outlets in December 2011, and opened the market fully to foreign investors by permitting 100 percent foreign investment in this area. It has also made some, albeit limited, progress in allowing multi-brand retailing, which has so far been prohibited in India. At present, this is restricted to 49 percent foreign equity  participation. The specter of large supermarket brands displacing traditional Indian mom-and- pop stores is a hot political issue in India, and the progress and development of the newly liberalized single-brand retail industry will be watched with some keen eyes as concerns further possible liberalization in the multi-brand sector. FDI in “single - brand” retail  While the precise meaning of single-brand retail has not been clearly defined in any Indian government circular or notification, single-brand retail generally refers to the selling of goods under a single brand name. Up to 100 percent FDI is permissible in single-brand retail, subject to the Foreign Investment Promotion Board (FIPB) sanctions and conditions mentioned in Press Note 3[8]. These conditions stipulate that: 1.   Only single-brand products are sold (i.e. sale of multi-brand goods is not allowed, even if produced by the same manufacturer) 2.   Products are sold under the same brand internationally 3.   Single-brand products include only those identified during manufacturing 4.   Any additional product categories to be sold under single-brand retail must first receive additional government approval FDI in single-brand retail implies that a retail store with foreign investment can only sell one  brand. For example, if Adidas were to obtain permission to retail its flagship brand in India, those retail outlets could only sell products under the Adidas brand. For Adidas to sell  products under the Reebok brand, which it owns, separate government permission is required and (if permission is granted) Reebok products must then be sold in separate retail outlets. FDI in “multi - brand” retail   While the government of India has also not clearly defined the term “multi -  brand retail,” FDI
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